Saturday, September 7, 2013

The U.S. Court of Appeals for the Tenth Circuit recently confirmed that an attorney did not qualify as a debt collector under the federal Fair Debt Collection Practices Act, where debt collection activities were only an incidental part of the attorney's practice.

An attorney ("Attorney") filed a debt collection action against a consumer. The consumer filed counterclaims. The Attorney failed to timely respond to the consumer's counterclaims, and the lower court entered a default judgment against the Attorney.

The Attorney then retained another attorney to represent her who, apparently not knowing of the order for default, filed an untimely response to the consumer's counterclaims, and served him with amended initial disclosures, which included an estimate of legal fees. These disclosures were inaccurate, which the Attorney's counsel acknowledged in a later response to the consumer's discovery requests.

The consumer then filed the instant action under the federal Fair Debt Collection Practices Act ("FDCPA"), alleging that the Attorney's counsel's conduct in the debt collection action violated the FDCPA. The Attorney's counsel moved for summary judgment, arguing that she was not a "debt collector" under the FDCPA, and therefore that its provisions did not apply to her. The lower court agreed, and granted the Attorney's counsel's motion. The consumer appealed.

As you may recall, the FDCPA defines "debt collector" as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any dates, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C. Sec. 1692(a)(6).

The Tenth Circuit noted that the resolution of this matter hinged on what constitutes "regularly" collecting debts for the purposes of the FDCPA, which it described as an issue of first impression. Accordingly, the Tenth Circuit scrutinized the applicable legislative history, and based on that analysis determined that "this much seems clear: [regular collection of debts] cannot be isolated or incidental but must, to varying degrees, be a significant aspect of an attorney's business."

The Tenth Circuit next considered the Second Circuit's analysis concerning how to determine whether debt collection activity is regular. It noted that the Second Circuit determined that the relevant considerations include, among others, "the absolute number of debt collection communities;" "the frequency of such communications and/or litigation activity;" "whether the entity has personnel specifically assigned to work on debt collection activity;" and "whether the entity has systems or contractors in place to facilitate such activity." Goldstein v. Hutton, Ingram, Yuzek, Gainen, Carroll & Bertolotti, 374 F.3d 56, 62-63 (2d Cir. 2004)

The Tenth Circuit adopted the Second Circuit's standard, and held that "courts must consider these factors in determining whether an attorney or law firm 'regularly' engages in debt collection..."

With that standard in place, the Tenth Circuit had little difficulty in affirming the lower court's decision. To reach that conclusion, the Tenth Circuit relied on the Attorney's counsel's affidavit indicating that matters related to debt collection constitute a small fraction of her caseload, and that the Attorney's counsel had no employees hired for the purpose of debt collection. Therefore, the Tenth Circuit noted that "[t]he record does not demonstrate that [the Attorney's counsel] engages in debt collection with any sort of regularity..."

Accordingly, the Tenth Circuit held that the Attorney's counsel "does not qualify as a 'debt collector' under the FDPCA," and affirmed the lower court's ruling.

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Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.